LONDON – Sanford C. Bernstein analyst Claudio Aspesi on Thursday upgraded his rating on the stock of U.K. pay TV giant BSkyB to "market perform," similar to a "neutral," from "underperform."

He said investors' competitive fears are overstated at this stage. And while there are open questions surrounding a possible combination of BSkyB with Sky Italia and Sky Deutschland, which would bring together all three European pay TV giants in which Rupert Murdoch's 21st Century Fox has a hand, he argued the stock has dropped to price levels where he had to adjust his stance.

"BSkyB's low valuation reflects fears of rising content competition with BT," Aspesi wrote in a report. "We disagree, as BT may view its 2015/2016 sports line up as adequate, and Sky may pursue growth on the continent, leading to a less aggressive English Premier League [soccer rights] auction than feared by many."

Discussing recent comments from BSkyB, in which Fox owns a 39 percent stake, that it has explored a merger with the Italian and German pay TV firms, Aspesi said: "Sky Europe would be a positive for Fox under most circumstances. For BSkyB, it depends on what it pays for Sky Italia and how it finances the deal."

Aspesi highlighted how key that price tag for Sky Italia is in the title of his report, which was "Down to One Number." He also wrote: "Ultimately, we think the big battle for BSkyB will be to convince its shareholders that it needs to pay a high multiple for Sky Italia, hence how large that multiple is will make all the difference."

He added about the longer-term outlook for a possible combined Sky Europe: "It is less clear whether Fox or a telecom [company] could then come back and acquire BSkyB at a later stage."

Overall, he upgraded BSkyB to "market perform" and upgraded his price target on the stock from $11.75 (£7) to $14.25 (£8.50).